2023-11-05 11:14:32 ET
Summary
- Equinox Gold reported record gold sales and revenue in Q3 2023, with 148,231 ounces of gold sold at a realized price of $1,917 per ounce.
- The completion of the Greenstone Project, scheduled for H1 2024, is expected to contribute to an annual production of 400,000 ounces of gold.
- Equinox Gold's stock has outperformed the VanEck Gold Miners ETF, with a 65.5% increase over the past year.
- I recommend buying EQX stock between $4.55 and $4.40, with a potential lower support at $4.15.
Introduction
Vancouver-based Equinox Gold Corp. ( EQX ) reported its third quarter 2023 results on October 31, 2023.
This article is an update of my preceding article, published on September 5, 2023. I have followed EQX quarterly on Seeking Alpha since February 2021.
With a 93% project completion performance as of September 30, 2023, the pre-commissioning of the Greenstone Project is one important event that has had a substantial impact on the company's balance sheet. The project is scheduled to be completed in H1 2024 .
An annual production of 400K Au Oz is anticipated. Orion Mine Finance holds 40% of the project, with Equinox Gold owning the remaining 60%.
EQX Greenstone Project (EQX Presentation)
CEO Greg Smith said in the conference call:
this was a record quarter or a record third quarter for the company in terms of gold sales and revenue, with just over 148,000 ounces of gold sold at a realized gold price of $1,917 per ounce. Cash cost per ounce sold was $1,363 with all-in sustaining cost per ounce sold at $1,603. I would note that these costs do include our write-down of inventory at Los Filos, which totaled approximately $70 per ounce on a consolidated basis.
With 16.922 Moz in P&P reserves, the company is a mid-tier gold producer with seven operating mines, one mine under construction, and three expansion projects. The assets that the company produces are located in Brazil, the USA, Mexico, and Canada.
EQX Assets Map (EQX Presentation)
3Q23 highlights
Equinox Gold produced 149,089 Au oz , up 8.3% from 2Q23 and up 3.8% from 3Q22 (143,615 Au oz).
Revenues for 3Q23 were $284.75 million , as opposed to $245.13 million in the previous year. In contrast to a $30.12 million loss the previous year, the company reported an income of $2.23 million . For 3Q23, adjusted EBITDA came to $81.2 million.
EQX 3Q23 Financial Overview (EQX Presentation)
2: Investment thesis
In general, I am hesitant to advocate for a gold miner who regularly experiences negative free cash flow and a growing debt load. I will, however, make an exception for Equinox Gold because the company is nearing completion of the Greenstone Project, which will start producing 400K Au Oz annually ( 240K Au Oz net for EQX) in H1 2024.
Following a further $147.59 million in capital expenditures ($90 million for the Greenstone Project) during the third quarter of 2023, the Greenstone project's remaining capital spending amounts to roughly $80-$85 million .
CFO Peter Hardie said in the conference call:
With respect to Greenstone, we are ahead on spend. Our guidance for the year was $277 million and we spent $270 million through Q3 with $90 million spent during Q3. Based on construction progress to-date, we believe the construction spend will decelerate and our share of the remaining construction budget, is about $80 million to $85 million, which is about $140 million on a 100% basis.
One great positive is that the gold price is turning increasingly bullish after the Fed announced it may hold interest rates in November and even potentially in December. As a result, gold is now up nearly 23% YoY.
EQX 1-Year Gold, Silver, Copper (Fun Trading StockCharts)
Therefore, I recommend trading 50% LIFO of your long-term holding to hedge against a significant decrease in the price of gold. It is advised to accumulate on any weaknesses.
3: Stock performance
Equinox Gold has outperformed the VanEck Gold Miners ETF ( GDX ) on a one-year basis. EQX is now up 65.5% .
Equinox Gold: Financial Snapshot 3Q23: The Raw Numbers
Equinox Gold | 3Q22 | 4Q22 | 1Q23 | 2Q23 | 3Q23 |
Total Revenues in Millions | 245.13 | 259.30 | 234.09 | 271.56 | 284.75 |
Net Income in Millions | -30.10 | 22.57 | 17.40 | 5.36 | 2.23 |
EBITDA $ Million | -17.70 | 7.35 | 68.00 | 67.27 | 68.23 |
EPS diluted in $/share | -0.10 | 0.07 | 0.05 | 0.02 | 0.01 |
Operating Cash Flow in Millions | 54.16 | 45.54 | 143.40 | 19.88 | 69.28 |
Capital Expenditure in Millions | 151.49 | 139.49 | 127.90 | 110.85 | 147.59 |
Free Cash Flow in the Million | -97.33 | -93.95 | 15.49 | -90.97 | -78.31 |
Total Cash: $ Million | 211.97 | 237.64 | 418.85 | 297.04 | 437.45 |
Total Long-term Debt in Millions | 725.76 | 828.02 | 832.68 | 835.96 | 1,086.20 |
Shares outstanding (diluted) in millions | 304.98 | 304.00 | 341.62 | 316.42 | 316.53 |
Data Source: Financial Statement
Gold Production And Balance Sheet Details
1: Revenues were $284.75 million in 3Q23
EQX Quarterly Revenue History (Fun Trading)
The higher output at Los Filos, Aurizona, and RDM, somewhat offset by the reduced production at Mesquite, was the main cause of the increase in gold sales this quarter.
2: Free cash flow was negative $78.31 million in 3Q23
EQX Quarterly Free Cash Flow History (Fun Trading)
Trailing 12-month free cash flow was an estimated negative $247.74 million, with a negative in 3Q23 of $78.31 million.
As I mentioned in my previous article, Santa Luz and Greenstone's capital expenditures account for the majority of the decline in free cash flow. At the Greenstone Project, the expected remaining capital expenditure is $80-$85 million.
For 2024, free cash flow is expected to be positive.
3: Net debt was $729.5 million, and cash (including equity investments) was $437.45 million in 3Q23.
EQX Quarterly Cash versus Debt History (Fun Trading)
As of September 30, 2023, the total cash was $437.45 million (including equity investments) . Long-term debt was $1,086.2 million. However, a lot has changed recently, and I recommend reading the "financial position" indicated below.
The stock suffered some downward pressure after the company issued $ 172.5 million of 4.75% unsecured convertible notes.
CEO Greg Smith said in the conference call:
To remind everyone, we announced a $150 million convertible note offering on September 18, with an annual interest rate of 4.75%, a 5-year term and a conversion price of US$6.30 per share. With the overallotment being exercised, we closed the total financing of $172.5 million. As many of you on the call have noted, the market did not react positively, but we strongly believe in the merits of this financing.
EQX Balance Sheet (EQX Presentation)
However, subsequent to the end of the third quarter the company repaid $ 166 million on the Revolver Facility and on October 31 EQX received $75 million on closing of gold purchase and sale arrangement.
4: Gold production consolidated details: 3Q23 gold production was 149,089 Au Oz (148,231 Au Oz sold)
EQX Quarterly Gold Production History (Fun Trading)
Gold production was 149,089 ounces in 3Q23 and the company sold 148,231 Au Oz. AISC in 3Q23 decreased to $1,630 per ounce sold , and the gold price realized was $1,917 per ounce .
The increase in gold sales was primarily due to higher production at Los Filos, Aurizona, and RDM offset partially by lower production at Mesquite.
- At Los Filos , the higher production was primarily due to higher ore tonnes mined despite the impact to recoveries and production in the Quarter related to solution management issues and some ore with a higher copper content, which has a longer recovery period.
- At Aurizona and RDM, the higher production was primarily due to higher grades and mill throughput.
- At Mesquite , the lower production was primarily due to mine sequencing and temporary issues with leach pad chemistry.
- Gold sales for the nine months ended September 30, 2023 were also impacted by higher production at Santa Luz , which achieved commercial production at the end of Q3 2022.
The AISC remains very high this quarter due to Santa Luz and Greenstone project CapEx. AISC is expected to stay elevated during 2023, with the Greenstone project completed in H1 2024.
EQX Quarterly AISC and Gold Price History (Fun Trading)
5-2023: Guidance unchanged
The production projections for Equinox Gold in 2023 range from 555K to 625K au. Oz. Additionally, it is projected that AISC will fall between $1,575 and $1,695.
EQX 2023 Guidance (EQX Presentation)
6: Production details per mine
EQX Quarterly Production per Mine History (Fun Trading)
7: Proven and Probable Mineral Reserves
Mineral reserves (proven and probable) are now 16.922 Moz with the incorporation of the Santa Luz and Greenstone projects.
EQX Reserves (EQX Presentation)
Technical Analysis (Short Term)
EQX TA Chart (Fun Trading StockCharts)
EQX forms an ascending channel pattern with resistance at $4.85 and support at $4.49. The RSI of 60–61 indicates an oversold condition in the process and implies that there may still be one leg up.ne leg up still.
An ascending channel is a technical analysis pattern comprising a series of higher highs and higher lows. It indicates a bullish market sentiment and a gradual upward price movement.
Maintaining a core long-term position and using roughly 50% to trade LIFO while you wait for your core position to reach a higher final price target above $7 is the trading strategy that I recommend with EQX.
In light of this, I advise selling EQX between $4.80 and $4.90 , with a potential higher resistance at $5.20, and cautiously accumulating between $4.55 and $4.40 , with a potential lower support at $4.15.
Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.
For further details see:
Equinox Gold: Greenstone Project Is Nearly Completed